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txlaw
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Personally, I think that what matters is always total debt. And total debt as a percentage of GDP has never been higher than today in peace time. After WWII total debt was more or less 160% GDP: compare that with a total debt of 350% GDP we have today.

 

Let’s say a family pays a 5% interest on its debt and its debt amounts to 3.5 times its revenues. Each year that family must pay 5% x 3.5 = 17.5% of its revenue in interest alone. Compare that to the US personal saving rate which today is 3.6%. If savings = investments, it means that we spend (Europe is the same, actually even worse!) almost 5 times more in interest than we invest. I don’t know if a family can prosper that way… What I know is that, if a business were to use its capital that way: spend on interest payment 5, invest 1; it would be very well on its way to bankruptcy.

 

giofranchi

 

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